The price-to-earnings ratio, or P/E, connects the price of a share with the profit that share earns. It is the most common way people put a price tag on a company's earnings.
P/E = Share price ÷ Earnings per share (EPS)
If a share trades at ₹150 and its EPS is ₹10, the P/E is 150 ÷ 10 = 15. Read it as: the market is paying ₹15 for every ₹1 of annual profit.
What the number means
A P/E of 15 says the price is fifteen times the annual profit per share. A higher P/E means the market is paying more for each rupee of current earnings; a lower P/E means paying less. That is all the ratio states — it is not a verdict.
- 1Find the share priceThe current market price of one share.
- 2Find the EPSThe company's net profit divided by its shares.
- 3DividePrice ÷ EPS gives the P/E.
Price-to-Earnings (P/E) Ratio
How many rupees the market pays for each rupee of annual earnings.
P/E = Share Price ÷ EPS
P/E Ratio
25x
A P/E is not “cheap” or “expensive” on its own. To interpret one, investigate the company's growth, the industry it operates in, its history, and how much debt it carries. A high P/E often reflects expectations of future growth; a low P/E can reflect doubt, a slow-growing industry, or simply a temporary jump in earnings. Change the numbers above and notice how small changes in EPS move the ratio a lot.
A useful trick
Flipping the ratio gives the 'earnings yield' — EPS ÷ price. A P/E of 20 is an earnings yield of 5%. This lets you compare earnings with other kinds of return.
When EPS is negative or close to zero, P/E becomes meaningless or wildly misleading. A company making a loss has no usable P/E.